Markets Tank on Japanese Trade Data but Some Positive Signs in Report

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The European crisis has not only hurt global companies, but has also shattered major economies. Recently published Japanese export numbers not only pulled many Asian markets along with it, but also took top European shares along like FTEU3 , London’s FTSE 100, Paris’s CAC-40,  and Frankfurt’s DAX.

According to the customs-cleared trade data for July, released by the Ministry of Finance for Japan, exports declined 8.1% YoY while imports rose 2.1%. The import growth was closely in line with the market expectation of a 3.0% increase, but exports declined more than the 2.9% forecast. The combination of continued growth in imports and the large fall in exports resulted in a ¥517.4bn trade deficit, the largest ever for a July. One positive, is a 1.2% rise in transport equipment, chiefly due to robust shipments of automobiles to the US.

Naxtis Reseach notes some of the positives about the Japanese economy below:

Looking ahead, we expect that Japan’s imports will likely soften from the current elevated level, as they started to re-operate some nuclear plants, reducing energy imports; while exports will probably be supported by a favourable base year effect, but at the same time, likely be clouded by weak external demand amidst the global uncertainties and the fiscal consolidation in the advanced economies.
All in all, we maintain our views that the Japan’s economy will probably recover towards the end of the year, growing at around 2.3% this year, mainly due to the implementation of the redevelopment projects and favourable low-base effect.
To reduce deflationary pressure and support exports, we maintain our views that the Bank of Japan will probably ease its monetary policy via expanding the Asset Purchase Program by JPY 5 to 10 trillion in the fall this year.

The next few days will witness various meetings to decide on the course of action to overcome the looming uncertainty over European crisis. Just today, Greek Prime Minister Antonis Samaras is scheduled to meet head of the Eurozone finance ministers, Jean-Claude Juncker, in Athens, and then on Thursday, the Greek Prime Minister is expected to see German Chancellor Angela Merkel and French President François Hollande.

“It’s going to be fascinating after the ECB meeting to see what direction the markets take; we’ve priced in a lot of the good news already, so I certainly don’t think we’ll see it rally (much), unless we get surprises on the upside,” said Ben Le Brun, a Sydney-based market analyst at OptionsXpress

Expecting the central bank to take action against the crisis, many big stock markets have risen 15-20 percent since June, also numerous European shares are touching their 13-month highs at present, but analysts doubt that the current rally to be sufficiently sustainable. “The recent rally in share prices has not at all been based on the outlook for earnings – in fact completely the opposite. It has been entirely built on hopes of large-scale ECB intervention in the euro zone periphery bond markets,” said Tammo Greetfeld, equity strategist at UniCredit in Munich, she also added “We are at the start of a multi-week period of key political events such as the Greek meetings, the ECB meeting on September 6 and the German court decision on the ESM (euro zone’s permanent bailout fund) the week after. We think the outcome of these factors, in combination with the negative earnings revisions, means the current rally will not last and that equities markets will decline”

ECB is all set to introduce new bond buying plans in September to help the troubled Eurozone. Discounting the news of new plans, the euro is trading into a seven-week high against the dollar as of Tuesday. Thanks to upcoming plans, German government bonds are back in demand.

Another piece of news that could boost the sentiments is expected to come later in the day, when the U.S. Federal Reserve will make public the minutes of its most recent meeting, which could provide clues about the policies of central bank.

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